New type of capital investment fund comes to Idaho

Three Idaho investors are creating a fund to invest in regional companies, particularly ones in Idaho led by women or people of color.

“We are looking for companies that do not fit the traditional bank lending or venture capital (VC) models,” said Denise Dunlap, managing partner for Sage Growth Capital in Boise. “There’s a lot of companies in Idaho that don’t want to take equity investors or wouldn’t qualify for a loan, but they still need growth capital.”

Nic Miller, executive director of the Venture College at Boise State University, said Sage Capital will be a great resource for local entrepreneurs.

“This new and innovative source of capital is yet another positive sign for Boise and Idaho’s entrepreneurial community,” he said. “The team at Sage Capital is highly qualified and well-positioned to provide another option for growth capital, which many companies in our state need.”

What is a revenue-based fund?

Unlike VC funds, Sage Growth Capital members won’t help run the companies they invest in, such as by taking a seat on the board of directors.

“Entrepreneurs like that fact,” Dunlap said. “They want to grow a company and own it. With a VC, they expect to be on the board.”

Instead, Sage Growth Capital is considered a revenue-based fund, which means investors are paid back out of the revenue the companies generate. The advantage of such a system is that repayments are flexible because they go up or down based on sales performance, Dunlap said.

“If you get a bank loan, the principal and interest don’t change,” she said.

The fund hasn’t invested in any companies yet, but is in due diligence on three and in discussions with several others, Dunlap said. She couldn’t name the companies but said some of them were food businesses, including a food processing equipment manufacturer, as well as several software companies and a couple of services businesses.

“We are looking to invest in companies that traditional VCs wouldn’t look at, like manufacturing companies or services businesses,” Dunlap said. “The prime thing we want to see is that they have revenue and some sort of stable growth margins.”

Typically that would be a minimum of $300,000 in revenue, she said.

Who’s involved in the fund?

Sage Capital launched on July 1 and has been talking with about 20 companies so far, Dunlap said.

“It’s all been word of mouth,” she said.

Part of that has been an educational process, she said.

“They’re used to bank financing, VC and angel funds, but they are not totally used to revenue-based finance,” she said.

The other two partners are Kevin Learned, a partner with Loon Creek Capital in Boise, and Molly Otter, formerly chief investment officer of Lighter Capital in Seattle, where she worked in revenue-based lending.

“She understands how to underwrite and negotiate revenue-based deals better than anyone in the country,” Dunlap said.

The fund won’t restrict itself to Idaho companies, but it would prefer to do so, Dunlap said.

“We also want to find companies and entrepreneurs who are typically underserved by the traditional market,” she said. “Companies with women founders and people of color, or serving markets that are economically distressed – we will give preference to those kind of companies.”

That model is similar to organizations such as MoFi, a community development financial institution that also lends to small businesses, but Sage Growth Capital expects to make above-market returns, Dunlap said. The organization also doesn’t have a mission to support impact investing or nonprofit investing, she added.